The Freemium Purchase Decision

If you are reading this, you probably use one or more freemium web services. One example of a freemium service is Flickr. It’s been my web photo service for years, and for the last few years, I’ve paid for a Pro account.

This blog is hosted at another freemium service: I pay for some premium services, including domain mapping (which is the reason you’re seeing this site as rather than as

How much are you willing to pay for the premium version of a freemium service? Two prices seem particularly salient. One price reflects the value of the premium version, including the features in the free version and the features added by the premium option. A second price reflects the value of the premium features, ignoring the value of the free features.

There are other answers to the question, besides the two prices described. In particular, some people will refuse to pay anything at all.

That said, I think that a lot of people will answer the question with one or other of the two prices. So, at the risk of over-explaining, I’ll be more explicit about the two prices. The first price is value (free features + premium features). The second is value (premium features only). For example, in deciding whether $25 is a reasonable price for a year of Flickr Pro, are you thinking about what a Pro user gets, or only about what a Pro user gets and a user of the free Flickr service doesn’t?

Maybe I should use a polling service to gather response to my question. A freemium polling service, perhaps? It just so happens that I recently signed up for such a service: GoPollGo, “a social polling application” that I found via TechCrunch.

You can respond to the question about freemium pricing over at GoPollGo. Or you can leave your response to the question, or any other comment you want to make on the freemium pricing issue, right here.

37signals, One Suite

I’ve long been an admirer of 37signals. Today, Jason Fried announced the 37signals suite. The suite comprises 4 web apps: Basecamp, Highrise, Backpack, and Campfire. The last of these is for online chatting, the first three for managing, respectively, projects, contacts, and stuff.

There are three pricing options, starting at $99/month. It’ll be interesting to see how and if that changes. 37signals like to keep things simple, while some of their clients will have “but I want more of this and less of that with price more like that” comments.

It’s interesting to see that this is not a freemium offering. There is no $0 small-scale or trial version of the suite.

37signals is the best example I know of a firm with a strategy. By strategy, I mean propensity to respond to requests with: No, that’s not what we do. In particular:

  • 37s takes a hard line against feature creep. To make it into a product, a new feature has to add a lot more in terms of useful function than it does in terms of clutter.
  • 37s does not believe in losing money to gain clients. It has always priced for profit. There are $0 versions of the apps, but they are intended for trial, not for extended free-of-charge use.

In terms of my own use, I like the first of these things a lot more than I like the second. One of the reasons I stopped using Backpack was because my use outgrew the $0, but my inclination to pay didn’t. I do currently use Highrise.

What should 37s do next? Well, what I’d like them to do is a Learning Management System (LMS). A ruthlessly uncluttered LMS would allow focus on learning from the course, without wasting cycles navigating the LMS. But I don’t think that an LMS is on the 37s radar, and so I’ll keep on writing about other LMSs.

Freemium, Ad-Supported Books?

The time for ads in books has come, according to an editorial in yesterday’s WSJ. Why now?

In short, physical books can’t compete with other print media for advertisers. Digital books can. With an integrated system, an advertiser or publisher can place ads across multiple titles to generate a sufficient volume. Timeliness is also possible, since digital readers require users to log in to a central system periodically.

For consumers, the free samples of digital books now available would surely include ads… Seeing ads in the sample may also convince a reader to pay for a premium, non-ad version of the full-length book. The old market segmentation of paperbacks and hardcovers will be replaced by ad-supported or ad-free books.

So books will be ad-supported and freemium. By the way, those two things go together. Why Ben Parr at Mashable thinks that ad-supported and freemium should be pitted against each other is beyond me, unless he was on a really tight deadline for a “web faceoff” post.

I don’t like the idea of ads in my books. But I am used to paying in order to make them my books, so I’d probably pay to get books without ads. And, come to think of it, if I can put up with DRM in books, I can put up with a lot.

The argument that advertisers like ebooks more than pbooks (or whatever we call physical/paper books) is a strong one. But as usual, if you want to see the future, you can go back in time: see Galleycat’s brief history shows that ads in books aren’t new.

Reddit Has Freemium Thrust Upon It

Reddit is among the handful of sites I visit most days. It’s always been free. It’s supported by ads. It’s owned by Conde Nast, but that doesn’t mean it’s supported by Conde Nast. As mike [raldi] explained at the end of last week:

We’ve been kinda bummed at reddit these days. It seems like every week something comes up that slows performance to a crawl or even leads to a total site outage. And we almost never get a chance to release new features anymore…

The bottom line is, we need more resources.

Whenever this topic comes up on the site, someone always posts a comment about how reddit is owned by Conde Nast… and how if they wanted to they could hire a thousand engineers and purchase a million dollars worth of heavy iron. But here’s the thing: corporations aren’t run like charities. They keep separate budgets for each business line, and usually allocate resources proportionate to revenue. And reddit’s revenue isn’t great.

The good news is, our traffic continues to grow by leaps and bounds… to about 280 million pageviews per month.

Reddit addressed the resources problem by going freemium, but in a rather unusual way. The usual freemium proposition is: it’s a free service, but you can pay $X to get the following features. The Reddit proposition was a lot less specific:

in exchange for subscribing to reddit, we can right now only offer you our undying gratitude and an optional trophy on your userpage. It’s kind of a lame offer, we know, but if the program is a success, we’ll be able to give subscribers better incentives in the coming months. We invite you to post ideas in the comments section; in the meantime, I suppose it’s more or less a pledge drive.

The Reddit people called this Reddit Gold. Mashable Stan called it going freemium out of necessity. He also called it “a huge success” and an example of how “a very dedicated community can sometimes shape not only your service… but also your business plan.”

Reddit’s Chris [KeyserSosa] also hails the success of Gold, and promises that “there are some cool things coming that would be impossible for us to do for eight million active users, but totally feasible to bring to the 6000 or so who have taken a leap of faith with us so far.”

That figure of 6000 Gold members: it’s 6000 more users paying for Reddit than there were a week ago, but it’s a lot less than the 2% rule of freemium would suggest. That said, we’re a only few days into a rather sudden and unorthodox leap into freemium.

I hope that many more will sign on to Reddit Gold. Some intermittent users of Reddit have probably only just become aware of the Gold program. It’s currently the number five story on Reddit itself, by the way. Others may be waiting to see what the premium features will be. Some of us are prone to procrastinate, and/or are delaying discretionary outlays until we get our tax refund (and yes we did file on time, back in April).

Ning Takes the Free Out of Freemium

Ning provides tools and hosting for social networks. Like many other social media services, it uses the freemium model. But it won’t for much longer, according to an email to all Ning employees from CEO Jason Rosenthal.

When I became CEO 30 days ago, I told you I would take a hard look at our business… Our Premium Ning Networks… drive 75% of our monthly US traffic, and those Network Creators need and will pay for many more services and features from us.

So, we are going to change our strategy to devote 100% of our resources to building the winning product to capture this big opportunity. We will phase out our free service. Existing free networks will have the opportunity to either convert to paying for premium services, or transition off of Ning.

Matthew Ingram at GigaOM describes Ning’s move as a sign that the much-hyped “freemium” model might not be the road to riches many seemed to think it was. While it’s true that Ning are about to drive off that road, I don’t think that anyone ever claimed freemium as a sure road to riches.

Rather, freemium sometimes seems like the best way of forging a trail on the social media frontier. But Ning is no longer on the frontier. It’s a well-known settlement, in charted territory. Ningsville is known to everyone who might want to set up shop there. Those who have set up shop are being told to pay up or move out.

This is hard on those who didn’t want to set up shop, but just wanted to hang out. It’s harder on those who wanted a storefront to do good things – in other words, it sounds really tough on nonprofits. I wonder if Ning will continue to offer free service to nonprofits.

You may have noticed that I disagreed with Matthew there, but did so very gently and mildly. Others prefer to disagree with fellow bloggers more vehemently. Here’s for example, is 37signals’ David, taking issue with TechCrunch’s Jason Kincaid.

Ning is laying off 40% of its staff and dumping free versions of its service. That’s a shitty day for the people who lost their job and the folks left behind without their coworkers… But I can’t help but be puzzled by the coverage of this. Here’s TechCrunch on the situation:

While the massive layoffs are obviously a big hit to the company, it isn’t all bad news for Ning: the service is still seeing its traffic grow according to comScore. But traffic growth is no longer good enough for the company — it needs to start generating some serious revenue, and advertising clearly isn’t cutting it.

Are you kidding me? The company has blown through $120MM of VC funding over six years, built up massive traffic, yet just had to slash and burn, and you’re saying that “traffic growth is no longer good enough”. How the hell was it ever good enough?

One of the point frequently made in favor of freemium is that the free users don’t cost much. The above quote from Jason R suggests that’s true of Ning. So why cut the free networks? To give David something to gloat about? Unlikely. Because the conversion rate from free to premium isn’t high enough? Maybe.

Because Ning needs to raise more money? That’s what I’d bet on. I suspect that Ning needs more funding, and wants a new story to tell when it passes the hat. Freemium is the old story. Double down on premium is the new story. I don’t see a happy ending. How about you?

Freemium Summit

The Freemium Summit sounds to have been one of the more interesting “about social media but held in meatspace” events. It was a single day (Friday, March 26) focused on “models that combine a free offering with a premium, paid offering.” This is way late by web standards, but nothing has happened in the last couple of weeks to make the summit’s content obsolete. Here’s some coverage worth checking out, with a sample quote from each post:

Tumbling Toward Freemium

Tumblr is a microblogging service (which I first covered about two years ago). It’s recently become freemium: the basic service remains free of charge; there is a cost for premium features.

I’m very interested the freemium model and how it is implemented. So are others, if the excellent discussion on my recent post on freemium at is anything to go by.

Posts on Tumblr premium themes at Mashable and at TechCrunch are positive. Comments following each of those posts is more mixed, with some indicating a preference for rival microblogging service Posterous.

At Tumblr’s own site, there was of course a blog post about the new themes. “They cost between $9 and $49 (most of which goes right into the pockets of the brilliant designers behind them).” Some theme designers also posted about their new premium Tumblr themes (e.g., WooThemes).

I think that the price is for use of a theme at Tumblr forever (but someone please correct me if it’s on some other basis, such as annual). The Tumblr theme garden now includes a premium plot.

I looked for the Tumblr support forum to gauge the reaction of the Tumblr community. I couldn’t find one, so I looked in the FAQ. No mention there. To my surprise, no mention either of the ad policy, since that’s one of the perennially hot topics at

I filled out the email support form with my questions. Email support is impressively prominent at the Tumblr site, and the response was equally impressive in terms of speed and of actually answering my questions. There is no official support forum. AdSense is allowed, with a couple of caveats.

In closing, I’ll throw out a more general thought about freemium: or rather, I’ll post it, hope for comments on it, then do some more thinking. There are two types of freemium service.

  1. Here’s a free service. By the way, here are some premium features you can pay for and use if you want.
  2. Here’s a service. You pay to use it. But here’s a very limited version, so that you can try it out for free.

Most freemium services are of the first type. Of firms providing the second type of freemium service, the most prominent is 37signals.

I welcome your comments on this post, on the freemium model, and on how it is used at Tumblr and elsewhere.

Freemium and Fencing

Freemium mashes up free and premium:you can use a freemium service, such as, at zero cost; you can pay for premium features. I pay to add two such features for this blog. One of the features maps the domain to

The other paid feature I use is custom CSS (see one of this blog’s first posts for an account of how I use it).

The fence between zero and any positive cost is perceived as high. So some users of freemium services seek means of effectively getting a premium feature without paying the price for it: these “loophole-lookers” seek holes in the fence.

The custom CSS upgrade seems particularly prone to attract loophole-lookers. I base this mainly on posts in the support forums, some of which include arguments such as: some other hosted blogging services don’t charge for CSS; I only want a little bit of CSS, so why should I be hit with the full charge?

One particular forum thread started about a week ago with a question about changing the background color of a theme. Responses so far include:

  1. You need custom CSS to change the background color.
  2. No you don’t. Here’s some code you can include in a text widget to style the background color of the whole blog.
  3. That loophole is going away soon.

The 3rd response is particularly interesting because it’s by Matt Mullenweg. He does use the word loophole.

This raises the question of how will change with respect to inline styling. And indeed, that question has its own forum thread.

I hope that will not, as one response in the thread suggests, use the blunt instrument of stripping out all inline style attributes. I think it would be reasonable to allow the occasional use of inline styling for things like using a font or image positioning appropriate to a particular post.

It would also be interesting to watch. The fence between free of charge and paying for custom CSS would see a fencing match. will plug the loophole of style code in a widget to style the whole blog. The riposte might involve putting similar code in a sticky post.

What do you think will do? What do you think it should do? I’d welcome comments addressing either or both of those different questions.

Conversion Rates and Funnels

The freemium model relies on enough users paying for premium services to meet the cost of servicing all users, including those who use take the free option. One of the key metrics for a freemium service is conversion rate from free to premium.

Toni Schneider notes that this rate is about 2% for, for, for Evernote, and for many other freemium services. He wonders if there is some kind of “2% rule” at work.

This reminded me of Funnel Analysis, as described in a Mashable guest post by Tim Trefren. Funnel analysis is about conversion rates, is a more general sense. A funnel is defined in terms of user actions, such as visiting a site, signing up for a service, becoming a premium/pay user, and so on.

Conversion rate, in this broader sense, is the percentage of users taking a particular action. Hence a firm’s funnel has multiple conversion rates/actions as it narrows. A freemium service using funnel analysis would probably define a payment action, marking the transition from a free user to a premium customer.

Tim is CEO of Mixpanel, a web analytics startup. (See Mixpanel for more about Funnel Analysis and the API.) Mixpanel itself uses the freemium model; I signed up for a free account.

Funnels can be transparent: a firm can publish its conversion rates. Funnels could be aggregated: Mixpanel could, with the cooperation of its client firms, publish aggregate data on various conversion rates. It could make it worth the clients’ while by, for example, offering early or deep looks at the aggregated data.

No Such Thing as a Free Sprout

About a year ago, I tried Sprout Builder. A sprout, in this context, is a Flash widget. SB cost nothing to try, and there was quite the buzz about it at the time. Two days ago, those of us with Sprout accounts got an email from Carnet Williams, the CEO.

Like many technology companies, we offered our service for free while we worked on our products, spoke with customers and developed our go-to-market strategy. Now that we have developed a solution worthy of creative professionals at the best agencies in the world, it is time for us to monetize. Starting in early February, we will begin charging for our service.

My reaction was one of surprise and interest, given the widespread use of the freemium model. I would have expected a very limited free version, with steps up from there in terms of price and service. Instead, as ReadWrite Marshall puts it: “Users will need to pay a minimum of $140 for a year of uptime for three widget projects.” He considers the lack of a free version a bad and sad thing, as do most of those who commented on his post.

Mashable Adam takes a more neutral tone. He quotes the SproutMail in full, and, based on a conversation with Carnet, “notes that the company will continue to offer free accounts to non-profits and academic institutions.” Again, comments on the post are mainly negative, with some feeling that they have been taken in by a bait and switch, with the year of free beta sprouts as the bait, and the recent email as the switch.

“The Case of the Charging Sprout” raises several questions, such as:

  • What is the deal for edu/nonprofit customers of SB? One of the quotes earlier in this post indicates that SB will be free for such customers, while the pricing FAQ states that “educators, design students and non-profits can use Sprout Builder at a discounted rate.”
  • Did SB give sufficient warning that the free sprout honeymoon would end?
  • WW37SD? What would 37signals do? 37s has done an impressive job with the freemium model, making the free version interesting enough and the $ versions premium enough. It’s interesting to compare the Basecamp pricing chart with the Sprout Builder chart. The former shows that there is a free version, the latter that there isn’t. Now, project management is certainly different from widget building, but I think that similar pricing considerations might apply.
  • How will SB’s decision work out? I don’t think that it will work well. A free version, however limited, encourages people to get started. While SB offers a 30-day free trial, that’s not the same thing as being able to maintain a sandbox over a period of time, so that one can, as time allows, keep going back to SB, assessing its fit for different projects that come up, and comparing it with competitors.

I’ll send a couple of emails soliciting answers to the first and third of these questions. But I hereby solicit your take on them, and comments are open…